Universal American Corporation (NYSE:UAM)
JPMorgan 32nd Annual Healthcare Conference
January 15, 2014, 10:30 AM ET
Richard Barasch - Chairman and CEO
Michael Newshel - JPMorgan
Michael Newshel - JPMorgan
Okay. Good morning, everybody. My name is Michael Newshel, a member of the team covering Managed Care and Healthcare Services at JPMorgan. To start us off this morning we have Universal American. Following the presentation, we're going to move to the Olympic Room for Q&A.
Now, I'd like invite Richard Barasch, the CEO of Universal American.
Thanks very much. Given the fact that it's an overflow crowd in the back, there are some seats upfront, so please feel free to fill in. But thanks for coming. I know it's early.
For those of you who've been following Universal American for several years, we've been pretty consistent. This slide has been the first slide in every presentation that we've given over the past probably 12 or 13 years. It's going to continue to be.
There is a lot going on in our world, lot going on in our markets, exchanges, cost, just kind of here -- from here to the end, but this isn't changing. These numbers are going to happen. Medicaid, they have happened. Their ramp up is happening.
And I think one of the things that the commentators forget when they talk about the problems with Obamacare is on a state level, there is still literally millions of people who have been signed up for Medicare over the past two weeks who are now covered, who weren't. So the Medicaid market is in fact growing.
The Medicare market which is getting a little less attention because it's kind of taken a back seat to the exchanges in Medicaid recently is growing and I think no one doubts; Red, blue, purple stripe that dealing with Medicare is the biggest fiscal issue that this country will face over the next decade or more.
There's some good news around about Medicare cost have moderated. I think there's reasons for it that I think are systemic and are going to keep going. I think that -- I think there is a valid theory around that Part D has fundamentally been free or close to free for the federal government because of the flattening of the cost curve in Medicare A and B because people are taking their drugs. They're more adherent.
So there's that theory -- excuse me, there is a theory that Medicare Advantage, even though it's still sort of 30ish% of the marketplace has really changed the way doctors in the senior space are practicing medicine. I guess they're being asked to practice a certain way for their Medicare Advantage, members who are patients of theirs and it's hard for a practice to differentiate.
I think they've gotten more efficient and more willing to do things in the office that they hadn't been before. And I think that's had an effect. I think some of the -- excuse me, some of the regulations from CMS about reemissions have had an effect. So I think there is an accumulation of things that have actually helped Medicare tremendously, but still -- it's still a problem, and it's still a big problem going forward, politics being what they are. It's going to be hard for there to be major legislation over the next period of time. I think the notion of a grand bargain.
It's hard. I don't think it's impossible, but I think it's going to be hard. So I think there is a consensus and it's actually across the isle consensus that within the context of the programs that we've got Medicare Advantage, ACOs and Fee-for-Service, we can still continue to do better in Medicare, particularly by dealing with some of the specific issues around chronic conditions.
So we're still there. Our business, obviously, has changed quite a bit in the last couple of years now that we're not in the Part D business anymore. It's taken us a little while to retool, but I think we're actually finding ourselves in very, very good shape for going forward.
Just on the landscape, this is -- I couldn't kind of pontificate about this a lot. I'm actually, three years ago, go to a cocktail party. People asked me what I did. Said I was in the healthcare business. Nobody wanted to talk. Now, everybody wants to talk what's happening, what's going on with Obamacare.
And now I can get through two or three sentences without people's eyes glazing over instead of not even be able to get through one couple of years ago. But people are talking about this. This is a big, big deal. Part of its political. The republicans are using this to their advantage. Part of it is policy, but it is on the minds of people far, far more than it was a year, two and three years ago and certainly more than five years ago.
You could talk about all the legislation, all the problems, all the problems with Obamacare, but something else was happening anyway during this period of time as we were reaching a tipping point on cost. And everybody who is the actual payer of healthcare cost was revolting against what was just an incredibly constant increase in cost.
And the employers were trying to figure out ways to save money, individuals, the States in Medicaid and, of course as was mentioned before, the feds in Medicare and Medicaid as well. So this revolution was happening anyway, even without quote "Obamacare". But Obamacare has taken the conversation to the front pages of the newspaper. And it's actually -- you're actually finding a lot more thoughtful commentary about this than they existed before.
But the punch line for us is the bottom. And then it's the companies that know how to control cost, demonstrate an improvement in quality and deliver value are going to thrive. And I think that statement is across the Board in services, it's devices, it's drugs, it's companies that can -- are on the side of reducing cost and improving quality are going to thrive.
It's not going to be a one-year conversation, it's a multi-year conversation. I think we're kind of in the first or second inning of this, and over the next four, five years, and excuse me, I think healthcare is and I am speaking to the quire here, I'm pretty sure is going to explode in ways that is hard to even predict at this point.
So what does this mean to Universal American? Again, we're -- we sort of look at the world, the healthcare world, on the payer sort of services side and we see Medicare Fee-for-Service and the ACO program, which I'll talk about in a little bit more details, is kind of a stealth program. But they are now close to 400 of these operating in the country right now. It's more than 12% or 13% of the Medicare population. This 20,000-odd doctors who have signed up, this is not an experiment anymore. This is real. And this is going to matter a lot over the next period of time.
And we're -- we think we're leaders in this. I was just mentioning. There's a public company. It's hard to be -- to have as much developmental stuff as we do inside of our company, but we believe very strongly in the ACO program we hope that over this year we'll be able to share some positive results. First year has been rocky, but I think we've learned a lot. And if anything feel even more comfortable and confident, not only about the specific opportunity in ACOs, but where it could lead us over the long-term.
MA, we've been in that business now for quite a long time. We've learned lot of lessons, some good ways some hard way, but sort of the punch line for us in Medicare Advantage is you can only be in that business where you really have the ability to influence cost.
The indemnity days are over, the arbitrage days are over, and if they are not over in every market they are going to be over in the next year or two. I think '15 is going to be an interesting year for everybody yet again. But Medicare Advantage works and works great when you really can move the needle on cost and quality. And I'll talk about that somewhere later.
Medicare risk, we took a kind of a -- we own a risk plan in Puerto Rico which is kind of an interesting spot, given all the issues that are sitting around -- that are involved in Puerto Rico. But we just bought a plant in Central New York in an area that's close to where we have a concentration of Medicare Advantage folks.
We see that as our first real, I'll call it code that bring us probably up to the size dipping in Medicare risk. We think that will put us in a great spot as New York continues to privatize its Medicaid program. We'll be in great shape in Central New York, hopefully downstate at some points if we're moving in that direction. We still have our Fee-for-Service business that came to us in the APS transaction with some interesting possibilities there.
And then finally the exchanges, I think at the end of the last year we told everyone that we did an exchange program again in Central New York, same place as our Medicaid plan, same place as our Medicare Advantage concentration. We did it again, just to kind of get some learning, get some understanding of what the program is about. I think obviously -- I think in retrospect we were smart not to have taken the full dive into the exchanges and we're kind of looking at where we can expand.
So we've got the possibility of doing a lot of things inside of our company. The issue for us as a smaller company now is to be very, very careful and very precise about the things we decide to go after. We have a good history of when we do go after things of having them work. Now, given the multitude of opportunities inside healthcare, we just have to be careful and be thoughtful about what we actually do.
So here are kind of the pillars of our company Medicare Advantage. We've got smaller membership than we've had in the past and this is an expression of our desire to get down to what we call the core where we actually have the ability to move the needle on cost and quality, which I think we've proven.
I think our star improvement last year was quite notable, quite important and as I am talking about '14, but I think the way -- really the way to think about us is '15 and beyond is what we've done to set ourselves up for the next portion of this and the stars improvement is quite, quite meaningful to us and I'll give you a sort of an example of how this works.
There's been a lot of talk recently -- I think actually you guys that report JPMorgan, they report on the reduction in reimbursements for 2015. Inside of those negative numbers is a bad and negative 2% give or take on the absence or the exploration of the stars demonstration that existed through 2014 and yes that's correct.
In the aggregate there will be that loss, but for us it's not a negative to you, it's probably closer or positive too, may be even more in some markets where we've gone from 0% bonuses to 5%. So inside of that negative number whether you call it a 5% or 7%, there is probably a four to five point positive swing for Universal American in that number before any of the other adjustment is going made.
So it's -- so we kind of look at this and we are not -- it's going to be a tough year for Medicare Advantage in '15 in the aggregate, but you kind of have to look company by company, market by market to really make a judgement about where the tough spots are going to be and where they are going to be harder -- easier rather.
We are still totally, totally in the business of physician engagement as a primary matter. This works not only for us, it's for -- there is -- I can name several companies that are doing this and doing this quite well. I think we are one of the longer term ones. Our expression of our views about this or how we are doing the ACOs, which is our way to do this further.
So we like this and sort of you get to where -- what our challenges are where we think about '14 and '15 and beyond and the smaller planned scale is an issue for us where we've struggled since we've sold our Part D business to get our business down to sort of a scalable spot, made a lot of progress in '13. We are going to make a lot more progress in '14 and I think we are going to make even more progress in '15 and one of the report cards that investors should have on us is just in fact how we are moving that SG&A number down over the next period of time.
I think we got a good plan and I think it's going to happen. Look, we made a big investment in stars. We called it out several times. It's worked. We are continuing to make this investment. Our hope is to at least maintain and then continue to improve our stars where we can.
We think that matters. And again that goes to the notion of in our view of just being -- you can't be good every place and we've made a decision to only focus our attention where we can be good. And then finally medical management. There is -- we are not just working with the physicians. We think that's the primary way to do it, but there is other ways. There is new -- all kinds of new techniques on patient engagement, member engagement and we are working those as well.
Lot of it is high tech. A lot of it is low tech. But the end of the day, it's human beings who are sick in their chronic conditions and dealing with them and dealing with their both behavioural and social issues matter a lot to how their -- how their physical issues are and we take a lot of pride in how we do our medical management.
You know, the ACOs, it's a big deal for us. We are spending a lot of money in this. As you know, it would be again as public company it's hard [down] to start up inside a public company, but that's fundamentally what we've got and we've got a Board who believes in it, management believes in it. We think we've learned a huge amount during 2013.
The most -- I shouldn’t say the most, among the most promising parts of the ACO program and this sort of happened right before Christmas. Didn't get a lot of [Notre] ID, but it's kind of real. Two things happened. One is another 130 entities signed up for the ACO program. That's a big deal, but equally important is CMS called for a request for information from plans and from stakeholders to see what it would take to turn these plans into risk bearing entities.
This has always been sort of our goal is it has to be great to work with these docs, save money, kind of share some savings, but the real ultimate investment reason is that these I believe are going to turn ultimately into risk bearing entities. It may look a lot like Medicare Advantage. It may look like Medicare Advantage [alike] and maybe something totally different, but it's provider driven and that's kind of a place where we live and live well.
I talked already about our Medicaid business. It's kind of a still story that's in development. It's not a secret that we've had some issues with the APS transaction. We are doing our best to work our way through it. It's definitely not a bright spot in the history of our acquisition.
History, we've done -- it's kind of, we've done more than 20. This one didn't work and as I say, we are working our way through it, but underneath that, there is still a business that we think we can salvage. States still need help. They are in the kinds of things that we know have to do and sort of more to be discussed about that later.
And then finally and this has been very important; Universal American and its shareholders for a pretty long time is that we care a lot about our capital structure and we care a lot about making sure that our structure is one that is fair to our shareholders. As many of you in the room know who've been shareholders for a while, we've distributed close to $19 a share to our shareholders over the past three year.
When we have excess capital, unless we got a good use for it inside the company, it's going out. I think during '13, we paid a $1.60, $240 million dividend to our -- excuse me, $140 million dividend to our shareholders, $240 million over the past two years. So I think we have a good history of being good stewards of capital and I think we have some more -- we have more excess capital to deal with in the company and we will over this period of time.
Membership, we had a -- I would say we had a good overall selling season. The very good news is our growth in our HMOs, we were a little disappointed with our results in New York, but when you go to the next page, I think you will see -- excuse me, even inside that number, it's actually not quite as non-positive as it looks. So let me kind of move to that page because this really gives you an example of how this looks.
We had wonderful growth in Houston, 13% year-over-year and within that 13% year-over-year, is good sales but incredibly positive lack of churn. We had very, very little in the way of member movement to any other plans and it happens, but it was quite, quite low. Our selling worked out pretty well. We are clearly the number one plant in Southeast Texas. We've extended our quote "lead" particularly in Vermont and in some of the areas in Houston.
And I'll make a point of never talking negatively about competitors, but I think it will be worthwhile to check the stars out for the Houston market for us versus our biggest competitors. I think it's going to put us even in a better spot for 2015. So we see Houston as an absolute jewel in our crown.
In New York, the Northeast, I was disappointed in a negative one on the network private fee-for-service plan, which is now the plan that's got four stars. I think there were some reasons for it. Our competitors in the market, I think were pretty aggressive.
We had to readjust some of our drug formularies to comport with what we thought was good risk management, but again same sort of issue is in this market we are going from three to four stars in 2015 and it's a very large jump in revenue relative to where we were and relative to where our competitors are.
So we are feeling pretty good about that. Obviously you see some pretty big negative numbers on the pyramid. Today's option, midway Southeast, which is not focused there. It's just not our business. We have a history of shedding areas that we don't think are going to be useful to us long haul. I think you can draw some conclusions from this chart about what our core is going to look like. I think we've been pretty clear to the investment world -- investor world about sort of how we think this is going to look going forward.
Our goal is to get down to a group of plans and a group of locations where we can really move the needle on cost and quality. So we are getting there, but -- and I'll repeat this, this only works if we can also get the scale piece right and that's very, very big on the agenda for '14.
ACOs, I kind of hit the punch line before, it's really this last bullet point that I think is worth noting. It's not going to be a '14 issue. It's a futures issue, but I think it's a reason why we are going to hang in there on the ACOs. I think we also learned a lot about kind of membership attribution and how that works.
It's complicated because no one is really signing up for this program. Members have to be attributable to practices and to physicians. We are kind of learning how that works a little bit better than we did before and I think that will work to our benefit later on.
This is a map. I think most of you have seen the map of the United States, but you can sort of look at the concentrations and the nice thing is a lot of our concentrations are in places where we also have some exposure on the MA side.
With four minutes to spare, I guess I should wait for questions till we get to the Olympic Room. So thanks very much everyone and I look forward to hearing your questions in the Olympic Room.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!